2) Exploring Crowdfunding Real Estate Development Prospects
The evolving nature of the real estate market is paving the way for the creation of new innovative investment models. Investors are increasingly coming together to capitalize on the prospects of the market and explore sustainable investments through the collective investment power. Real Estate Crowdfunding is emerging as a popular form of collaborative investment for individual investors in the real estate industry.
Exploring Real Estate Crowdfunding and its Impact
Real estate crowdfunding pools funds together from different investors into a single investment fund to make real estate investments and generate returns. Think of it as multiple people coming together to combine their investments to create an apartment building that they can further use to generate profits. Crowdfunding investments can be directed towards the purchase of offices, retail centers, and other forms of real estate. This phenomenon offers exponential benefits to investors and increases the potential buying power of the combined investment.
Benefits of Crowdfunding Real Estate Development
Unlike single real-estate investment projects, crowdfunding projects allow investors to explore long-term value by tapping into the potential of the collective buying power of millions of people.
Here are some of the biggest benefits offered by real estate crowdfunding:
- Portfolio Diversification
The real estate sector has emerged as the most lucrative avenue for investors to diversify their assets and expand their portfolio coverage beyond the conventional limitations of common asset classes to broader risks mitigated areas. Portfolio diversification allows investors to benefit from the stable returns generated by the real estate industry and decrease the vested risk in other areas.Conventional asset classes are also susceptible to downturns and market fluctuations. These changes can add a significant element of risk to the portfolio of individual investors. Looking towards real estate investments can be a great way to diversify portfolio composition and add a different level of growth potential to your portfolio.
- No Minimum Investment
Most conventional investments require significant upfront capital to get started, especially in the real estate industry. Even the smallest projects start from tens of thousands of dollars of required capital to get your foot into the space. Crowdfunding investments expand your prospects by allowing you to capitalize on low barriers to entry. Conventionally, the real estate investment class has only been limited to the richest elite. This limits the prospects of the investments and excludes the wide majority of people that are not able to afford high capital entries into the real estate market. Leading crowdfunding platforms such as Albany Park Capital allow investors to get started with absolutely no minimum entry requirement. This simplifies the investment process and allow everyone to be stakeholders in the growth of the projects. Low minimum investments also significantly downsize the investment risk you face while making an entry into the market.
- Significant Growth Potential
The real estate industry has been amongst the fastest-growing industry segments over the past few years. The market has significantly grown thanks to the involvement of new investors. The current landscape is optimal for retail investors to enter the market and capitalize on the potentials offered in the market.
Individual investors are also significantly exposed to active market risks if a single project fails to get off the ground. This can lead to exposing an investor’s entire capital to the market. Crowdfunding investments minimize this risk by enhancing the spread of the investment across different geographical locations. This distributes the value and ensures that any single mishap does not negatively impact the direction of the investment.
Community Driven Growth
One of the most impactful factors of crowdfunding investments has been the impact the phenomenon has had on community-driven investment. People have been able to come together to collectively explore development opportunities in their communities. This community-driven development is transforming regional development projects and allowing people to be stakeholders in the development of successful community projects.
Conventional real estate investments are marred by a number of hassles that impact the success of the projects. Some of the most common problems include the requirements to actively manage the construction and property management process to generate returns. It can also be complicated to handle the tenant management aspect of the properties. Crowdfunding real estate investments simplify the process by removing a major portion of the complications. Crowdfunding investments are primarily managed by represented sponsors who handle the majority of the management process. This allows you to get sustainable returns without having to personally get involved in the real estate management activities.
Types of Real Estate Crowdfunding
Similar to other investment types, there are a number of different crowdfunding options that investors can choose from.
Here are some of the most common forms of crowdfunding.
Equity-based Investments – Equity-based crowdfunding allows investors to receive a percentage return on the equity of the investment opportunity. Equity-based investments allow investors to be owners in the performance of the company and its associated projects.
Reward-based Investments – Reward-based crowdfunding relies on the conventional crowdfunding model where individuals are able to achieve described rewards in return for their investments in the project. This form of reward can be customized based on the issuing authority.
Debt-based Investments – Debt-based crowdfunding provides investment opportunities similar to bank loans where private individuals come together in the form of a collected initiative to loan the money to a project and receive sustainable returns.
Increasing Public Traction for Crowdfunding
Crowdfunding is becoming a viable source for common individuals to benefit from real estate growth opportunities and collaborate to explore thriving investments. The ability to diversify across multiple projects without requiring management expertise is an invaluable element of real estate crowdfunding. If you’re a retail investor looking to get started with real estate investments that do not require significant initial capital, crowdfunding is a great way to get started in a proven alternative asset class.
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